UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
|
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OR
|
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
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Commission file number 0-17955
SEARS DC CORP.
(Exact Name of Registrant as Specified
in Its Charter)
Delaware
36-3533346
(State of Incorporation)
( I.R.S. Employer Identification No.)
3711 Kennett Pike, Greenville, Delaware
19807
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including
area code: 302/434-3100
Securities registered pursuant to Section
12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act: Common Stock par value $1.00 per share.
Registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934
during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
As of March 31, 2000, the Registrant
had 1,000 shares of common stock outstanding, all of which were held by
Sears,
Roebuck and Co.
Registrant meets the conditions set
forth in General Instruction H(1) (a) and (b) of Form 10-Q and is therefore
filing this
form with a reduced disclosure format.
SEARS DC CORP.
INDEX TO QUARTERLY REPORT ON FORM
10-Q
13 WEEKS ENDED APRIL 1, 2000
| Part I - Financial Information |
Page
|
| Item 1. Financial Statements |
Statements of Income (unaudited) -
13 Weeks Ended April 1, 2000 and April 3, 1999 |
1
|
Statements of Financial Position -
April 1, 2000 (unaudited), April 3, 1999
(unaudited), January 1, 2000 |
2
|
Statements of Cash Flows (unaudited) -
13 Weeks Ended April 1, 2000 and April 3, 1999 |
3
|
Notes to Financial Statements (unaudited) |
4
|
Item 2. Management's Discussion and
Analysis of
Financial Condition and Results of Operations |
5
|
Part II - Other Information |
|
Item 6. Exhibits
and Reports on Form 8-K |
6
|
-1-
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS DC CORP.
STATEMENTS OF INCOME
(Unaudited)
| |
13 Weeks Ended
|
|
|
|
|
| |
April 1,
|
|
April
3,
|
|
|
|
|
| (thousands,
except ratios) |
2000 |
|
1999
|
|
|
|
|
| |
| Revenues |
|
|
|
|
|
|
|
|
Earnings on notes of Sears |
$ 4,809
|
|
$ 7,106
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
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|
|
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| Expenses |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
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Interest and related expenses |
4,773
|
|
7,058
|
|
|
|
|
| Operating
expenses |
12
|
|
13
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total expenses |
4,785
|
|
7,071
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Income before
income taxes |
24
|
|
35
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Income taxes |
8
|
|
12
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Net income |
$ 16
|
|
$ 23
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Ratio of earnings
to fixed charges |
1.005
|
|
1.005
|
|
|
|
|
| |
|
|
|
|
|
|
|
| See notes
to financial statements. |
| |
| |
-2-
SEARS DC CORP.
STATEMENTS OF FINANCIAL POSITION
|
(Unaudited) |
|
April 1,
|
|
April 3,
|
|
January 1,
|
| (thousands,
except share data) |
2000
|
|
1999
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
Cash and cash equivalents |
$
- -
|
|
$
58
|
|
$
- - |
|
Notes of Sears |
228,802
|
|
304,290
|
|
223,993
|
|
Interest receivable and other assets |
391
|
|
528
|
|
420
|
|
Total assets |
$ 229,193
|
|
$ 304,876
|
|
$ 224,413
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
Medium-term notes |
$ 213,025
|
|
$
298,175
|
|
$
213,025
|
|
Interest payable and other liabilities |
10,826
|
|
1,423
|
|
6,062
|
|
Total liabilities |
223,851
|
|
299,598
|
|
219,087
|
|
|
|
|
|
|
|
|
|
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| Stockholder's
Equity |
|
|
|
|
|
|
Common stock, par value $1.00 per share, 1,000 |
|
|
|
|
|
|
Shares authorized and outstanding |
1
|
|
1
|
|
1
|
|
Capital in excess of par value |
7
|
|
7
|
|
7
|
|
Retained income |
5,334
|
|
5,270
|
|
5,318
|
|
Total stockholder's equity |
5,342
|
|
5,278
|
|
5,326
|
|
|
|
|
|
|
|
Total liabilities and stockholder's equity |
$ 229,193
|
|
$
304,876
|
|
$
224,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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| See
notes to financial statements. |
|
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|
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|
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|
-3-
SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
|
13
Weeks Ended
|
| |
April 1,
|
|
April 3,
|
| (thousands) |
2000
|
|
1999
|
| |
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| Net
income |
$
16
|
|
$
23
|
Adjustments
to reconcile net income to net cash provided by
(used in) operating activities: |
|
|
|
|
Net change in interest receivable and other assets |
|
|
|
|
and interest payable and other liabilities |
4,793
|
|
(7,361)
|
|
Net cash provided by (used in) operating activities |
4,809
|
|
(7,338)
|
| |
|
|
|
| CASH FLOWS
FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
| (Increase)
decrease in notes of Sears |
(4,809)
|
|
41,668
|
|
Net cash provided by (used in) investing activities |
(4,809)
|
|
41,668
|
| |
|
|
|
| CASH FLOWS
FROM FINANCING ACTIVITIES: |
|
|
|
| |
|
|
|
| Repayments
of medium-term notes |
- -
|
|
(34,330)
|
|
Net cash used in financing activities |
- -
|
|
(34,330)
|
| |
|
|
|
| Net increase
in cash and cash equivalents |
-
|
|
-
|
| |
|
|
|
| Cash and cash
equivalents at beginning of period |
- -
|
|
58
|
| |
|
|
|
| Cash and cash
equivalents at end of period |
$
- -
|
|
$
58
|
| |
|
|
|
| |
|
|
|
| See notes to
financial statements. |
|
|
|
-4-
SEARS DC CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Notes to Financial Statements
Sears DC Corp. ("SDC"), a wholly-owned
subsidiary of Sears, Roebuck and Co. ("Sears"), was formed to
borrow in domestic and foreign debt
markets and lend the proceeds of such borrowings to Sears and
certain direct and indirect subsidiaries
of Sears in exchange for their unsecured notes. SDC raised funds
through the sale of its medium-term
notes and direct placement of commercial paper with corporate and
institutional investors. The only
current outstanding debt of SDC is two series of medium-term notes.
SDC does not plan to issue additional
debt.
Under an agreement between SDC and
Sears, the interest rate paid by Sears on its unsecured notes is
designed to produce earnings sufficient
to cover SDC's fixed charges at least 1.005 times. Required
payments of principal and interest
to SDC under the Sears borrowing agreement are intended to be
sufficient to allow SDC to make timely
payments of principal and interest to the holders of its securities.
Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted
accounting principles have been condensed or omitted. The
significant accounting policies used
in the presentation of these financial statements are consistent with
the summary of significant accounting
policies set forth in SDC's Annual Report on Form 10-K for the fiscal
year ended January 1, 2000, and these
financial statements should be read in conjunction with the
financial statements and notes found
therein. The interim financial statements reflect all adjustments
(consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a
fair statement of the results for
the interim periods presented. The results of operations for the interim
periods should not be considered indicative
of the results to be expected for the full year.
The medium-term notes are not redeemable
except for notes having a stated maturity at the time of issue
of more than seven years which may
be redeemed under certain circumstances in the event of declining
Discover Card receivables of Sears
former subsidiary, Dean Witter, which is now a part of Morgan Stanley
Dean Witter & Co. Selected details
of SDC's borrowings are shown below.
| (millions) |
April 1,
2000
|
|
April 3,
1999
|
|
|
|
|
| 8.52% to 9.26% medium-term notes due through 2012 |
$ 213.0
|
|
$ 298.2
|
At April 1, 2000, medium-term note
maturities for the remainder of 2000, the next four years, and thereafter
are as follows:
|
|
|
|
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|
|
|
|
|
2000 |
|
|
$ |
-
|
|
|
|
|
|
|
|
2001 |
|
|
|
135.5
|
|
|
|
|
|
|
|
2002 |
|
|
|
24.7
|
|
|
|
|
|
|
|
2003 |
|
|
|
9.0
|
|
|
|
|
|
|
|
2004 |
|
|
|
-
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
43.8
|
|
|
|
|
|
|
|
|
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$ |
213.0
|
|
|
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|
-5-
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SEARS DC CORP.
13 WEEKS ENDED APRIL 1, 2000 AND
APRIL 3, 1999
Financial Condition:
SDC has invested funds in the promissory
notes of Sears, which pay interest sufficient to cover SDC's
fixed charges at least 1.005 times,
and in highly liquid short-term investments.
The $213.0 million in outstanding medium-term
notes as of April 1, 2000 are not redeemable prior to their
stated maturity except for notes having
a stated maturity at the time of issue of more than seven years
which may be redeemed under certain
circumstances in the event of declining Discover Card receivables
of Sears former subsidiary, Dean Witter,
which is now a part of Morgan Stanley Dean Witter & Co.
Medium-term notes outstanding decreased
28.6% to $213.0 million as of April 1, 2000 from $298.2 million
as of April 3, 1999. The decrease
in the notes resulted from the payment on certain notes that reached
their maturity date. The corresponding
decrease in the notes of Sears is due to the need to fund the
payments on the medium-term notes
outstanding.
Results of Operations:
Revenues decreased 32.4% from $7.1
million to $4.8 million for the 13 weeks ended April 1, 2000, and
April 3, 1999, respectively. The decrease
is a result of the reduction in the average amount of notes of
Sears outstanding during 2000 compared
to 1999. The decrease in the average amount of medium-term
notes outstanding led to interest
and related expenses decreasing 32.4% from $7.1 million to $4.8 million
for the 13 weeks ended April 1, 2000,
and April 3, 1999 respectively. Earnings covered fixed charges
1.005 times for the 13 weeks ended
April 1, 2000 and April 3, 1999 respectively.
Cautionary Statement Regarding Forward-Looking
Information:
Certain statements made in this Report
on Form 10-Q are forward-looking and are made in reliance on the
safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. As such they involve risks
and uncertainties that could cause
actual results to differ materially. These statements are based on a
number of assumptions about a variety
of factors, including the ability of Sears to perform under the
agreements described herein and general
economic conditions (such as interest rates). While SDC
believes that these assumptions are
reasonable, SDC cautions that it is impossible to predict the impact of
certain facts that could cause actual
results to differ from expected results.
-6-
PART II. OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K.
(a) Exhibits.
An Exhibit Index has been filed as part of this Report on Page E-1.
(b) Reports on Form 8-K.
None
-7-
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Sears DC Corp.
(Registrant)
May 12, 2000
By: ROBERT J. PHELAN
Robert J. Phelan
Vice President and Controller
(Principal Accounting Officer
and Authorized Officer of Registrant)
E-1
EXHIBIT INDEX
SEARS DC CORP.
13 WEEKS ENDED APRIL 1, 2000
| 3.1 |
Certificate of Incorporation of Discover Credit Corp. dated January
9, 1987 (Incorporated
by reference to Exhibit 3(a) to Form 10 of the Registrant ("Form 10")*). |
| 3.2 |
Amendment to Certificate of Incorporation of Discover Credit Corp.
dated April 9, 1987
(Incorporated by reference to Exhibit 3(b) to Form 10*). |
3.3 |
Certificate of Amendment of Certificate of Incorporation dated May
21, 1993 to change the name of Discover Credit Corp. to Sears DC Corp.
(Incorporated by reference to Exhibit 3(c) to Form 10-K of the Registrant
for the fiscal year ended December 28, 1996*). |
3.4 |
By-laws of Sears DC Corp. as amended to February 6, 1996 (Incorporated
by reference to
Exhibit 3(c) to Form 10-K of the Registrant for the fiscal year ended
December 30, 1995*). |
4 |
Registrant hereby agrees to furnish the Securities and Exchange Commission,
upon
request, with the instruments defining the rights of holders of long-term
debt of the
Registrant with respect to which the total amount of securities authorized
does not exceed
10% of the total assets of the Registrant. |
27 |
Financial Data Schedule** |
_____________________
*Sec File No. 0-17955
**Filed herewith